When the housing bubble popped?

First of all, why do I comment on real estate bubble in my political blog? I think the movement in the housing prices is the most important thing happening in our economy in the last 3 years. Construction created millions of jobs and lifted commodity prices, mortgage refinancing injected hundreds of billions of dollars into consumption, wealth effect is driving people crazy into negative savings. In short, the whole nation is consuming more than it is producing as real estate creates paper wealth.

So, when the bubble had popped? Interesting thing is that many people expect something similar to Nasdaq dropping 5 times from 2000 to 2002. This may never happen with real estate, as any slowdown kills liquidity and just prevents people from selling. Moreover, many people just can't sell as they own more of mortgage then their house is worth. The prices decline just 3-5% every year, but for several years in a row. This is called slow bleeding.

After hot 2005 we see a normal seasonal decline in December and then sharp rebound in January. Then a drop after feds raised in late January to 4.5%. Currently, mortgage applications are trailing 2005 by 15% and the gap is slowly widening. The purchase index declined 13% from January and is slowly trending down.

What's the answer to my question, when the bubble popped? I think it never popped and never will, instead, it is slowly deflating and will continue to deflate in the years to come.

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4 Responses to “When the housing bubble popped?”

I believe women are more resilient than men. But not from the start. When a woman has been tempered by hardship she becomes a truly powerful entity. I have made thousands of mortgage loans, and used to specialize in sub-prime lending. So I made my share of loans to women. Don’t judge me too severely, I believe in Karma and always tried to do good by people. I have a special place in my heart for women who have been through hell.

I once made a loan to a woman who’s grandson had been in a car during a drive by shooting. She needed money for the boy’s attorney. She had 5 years left on a 30 year mortgage. She unflinchingly took 100% of her equity and gave all of it to the attorney. This woman had raised a daughter alone and when the daughter became pregnant, she raised the grandson. She was there for him up to his conviction and life sentence. She was a custodian for the same company for 25 years. She made $24K a year. That is a lifetime of strength and survival. We hear much about men who do some heroic thing and receive adulation and attention. But what of the woman above? What about a lifetime of sacrifice?

I said that women were not resilient from the start. I have a daughter and I go out of my way to make her life nice. She is the most precious thing in the world. What if her mother and I were gone? She would have to become strong since she would no longer be the most special person in the universe. I think many women are less tempered for this reason. Perhaps it is because children are usually involved, women can get very strong and survive when most men would run away.

In terms of hardship and resilience, women have men beat. I had a college friend who got pregnant and her boyfriend dumped her. She was literally a princess. Shocking good looks, popular, homecoming queen. But a single mother never the less. She quit school and got a job to support herself and new child. I remember checking in on her about the time my wife and I had our first kid. My wife and I did not sleep for months and still had to go to work each day. We shared the load and bitched about how hard it was to have a baby while working and living. Val did it all by herself. I don’t know how she did, but she did. She survived, that is strength. There was no white knight for Val. It was all her.

OOOPs Sorry please ignore this monster comment. It was for another article I had written still in my copy que on the resilience of women. Please feel free to come to my site and leave a totally unrelated comment.
Sorry again. I will re post my REAL comment next. Now where is that book on windows xp….

I agree with your analysis that the bubble may not pop. However I would like to interject that there really never was a national bubble. The reality is that costal areas and mountain properties are ‘bubblicious hot spots.’ They tend to have grossly over inflated values. So what’s the worst case?

What if every homeowner in Miami, FL or Carmel By The Sea, CA, defaulted on their mortgage? Would you have a bubble pop? Most would say yes, I say no. HOWEVER; if that happened in Overland Park, KS or Pittsburg, PA it would be catastrophic and everybody near would suffer gravely. It would take decades to recover.

Back to Miami and Carmel. Those properties would never make it to sheriff’s sale. The bubblicious properties would sell like to hot cakes as soon as they came available! This is because of the old adage: “location, location, location.”

So the ‘hot spots’ are what define the bubble but they are also the spots that could rebound quickly from economic downturn. The rest of the country will plug along at it’s normal slow pace. So one could say there really is no bubble. And if there is: BLAME realtor commissions for it!

I agree about Florida. But there are some other very dangerous hot spots, where prices are due for at least 20% correction (which will take few years according to my view): New York, L.A., Boston, San Diego, San Francisco.

20%-30% of U.S. population live just in those 5 areas. For example, metropolitain New York is 22 million of people. And average condo price there is $1.2 million.